China’s Australian coal ban worsens rolling power crisis

China’s power problems have been compounded by a ban on coal imports from Australia — the centrepiece of the Xi government’s economic coercion campaign on Canberra.

Employees working on a high-voltage direct-current transmission line in Wuxi, in China's eastern Jiangsu province. Picture: AFP

Beijing’s ban on Australian coal has worsened a rolling Chinese power crisis that has closed factories, left households in the dark and created chaos as traffic lights have been cut off.

Economists are closely watching the situation, with some downgrading growth forecasts for the world’s second-largest economy.

The perfect storm of a heatwave in China’s south, high energy prices as the world economy picks up and hits to domestic production have led to a spike in the price of thermal coal in China.

That has been made worse by a ban on coal imports from Australia – the centrepiece of the Xi administration’s economic coercion campaign against Canberra.

“They are in a world of pain,” said Mark Vaile, chairman of Australian coal producer Whitehaven.

“Their domestic (coal) price was high to start with,” said Mr Vaile, a former Nationals leader and trade minister in the Howard government.

China’s problems come as companies in Australia – a major energy exporter – benefit from near record prices for coal and liquefied natural gas.

Australian producers exported $14bn of thermal and coking coal to China until Beijing black-listed the trade in mid-2020 after the Morrison government called for an independent inquiry into the origins of the coronavirus.

More than two thirds of China’s electricity network is powered by coal.

China’s domestic coal producers – a major special interest group in the country – account for more than 90 per cent of China’s thermal coal supply. Thermal coal imports are used to reduce price spikes when demand is tight.

Energy experts said the ban had contributed to the problem.

“What is clear at this point is (that the) coal price is the fundamental reason,” said Li Shou, a senior climate and energy policy officer at Greenpeace China based in Beijing. “Australia is one factor,” he said.

Xiamen university professor Lin Boqiang said it was more expensive to transport coal by rail from China’s coal regions to its coastal factories than by sea from Australia.

Others downplayed a link to the ban. The party controlled tabloid the Global Times, citing an “industry insider”, said it was “ridiculous” to link the coal shortage to the absence of Australian coal.

Chinese power plants have increased imports from Russia, Indonesia and Mongolia to offset the lost supply from Australia, which until the ban had established itself as a reliable supplier.

Han Jun, Governor of Jilin province in China’s north-east, told the state control Jilin Daily he would “apply for more import quotas” after Jilin and neighbouring provinces Liaoning and Heilongjiang experienced blackouts over the weekend.

Power has also been rationed in Guangdong, Fujian, Zhejiang and Jiangsu, China’s industrial powerhouse.

Most electricity prices in China are fixed, which means producers are currently running at a loss as the coal price has rocketed.

“The more they supply, the more difficult for them financially,” said Raymond Yeung, a China-focused economist at ANZ.

“How are they going to help to restore the incentive for the power generator to supply is probably the biggest problem facing China,” he told The Australian.